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Organization structure & Design

Defining Organizational Structure


Organizational Structure
The formal arrangement of jobs within an organization.

Organizational Design
A process involving decisions about six key elements:

Work specialization
Departmentalization Chain of command Span of control Centralization and decentralization Formalization

Purposes of Organizing

Divides work to be done into specific jobs and departments.

Assigns tasks and responsibilities associated with individual jobs.


Coordinates diverse organizational tasks.

Clusters jobs into units.


Establishes relationships among individuals, groups, and departments.

Establishes formal lines of authority.


Allocates and deploys organizational resources.

Organizational Structure
Work Specialization
The degree to which tasks in the organization are divided into separate jobs with each step completed by a different person. Overspecialization can result in human diseconomies from boredom, fatigue, stress, poor quality, increased absenteeism, and higher turnover.

Departmentalization by Type
Functional
Grouping jobs by functions performed

Process
Grouping jobs on the basis of product or customer flow

Product
Grouping jobs by product line

Customer
Grouping jobs by type of customer and needs

Geographical
Grouping jobs on the basis of territory or geography

Functional Departmentalization
It is used mainly by smaller firm that offers a limited line of products because it makes efficient use of specialized resources.

Advantages

Efficiencies from putting together similar specialties and people with common skills, knowledge, and orientations
Coordination within functional area In-depth specialization Disadvantages

Poor communication across functional areas

Geographical Departmentalization

Advantages More effective and efficient handling of specific regional issues that arise Serve needs of unique geographic markets better Disadvantages Duplication of functions Can feel isolated from other organizational areas

Product Departmentalization

+ + +

Allows specialization in particular products and services Managers can become experts in their industry Closer to customers Duplication of functions

Process Departmentalization

+ More efficient flow of work activities Can only be used with certain types of products

Customer Departmentalization

+ Customers needs and problems can be met by specialists - Duplication of functions

Organization Structure (contd)


Chain of Command
The continuous line of authority that extends from upper levels of an organization to the lowest levels of the organization and clarifies who reports to who.

Organization Structure (contd)


Authority
The rights inherent in a managerial position to tell people what to do and to expect them to do it.

Responsibility
The obligation or expectation to perform.

Unity of Command
The concept that a person should have one boss and should report only to that person.

Organization Structure (contd)


Span of Control
The number of employees who can be effectively and efficiently supervised by a manager. Width of span is affected by:

Skills and abilities of the manager Employee characteristics Characteristics of the work being done Similarity of tasks Physical proximity of subordinates

Contrasting Spans of Control

Organization Structure (contd)


Centralization
The degree to which decision-making is concentrated at a single point in the organizations.

Organizations in which top managers make all the decisions and lower-level employees simply carry out those orders.

Decentralization
Organizations in which decision-making is pushed down to the managers who are closest to the action.

Employee Empowerment
Increasing the decision-making authority (power) of employees.

Factors that Influence the Amount of Centralization

More Centralization
Environment is stable.

Lower-level managers are not as capable or experienced at making decisions as upper-level managers.
Lower-level managers do not want to have a say in decisions. Decisions are relatively minor. Organization is facing a crisis or the risk of company failure. Company is large. Effective implementation of company strategies depends on managers retaining say over what happens.

Factors that Influence the Amount of Centralization

More Decentralization
Environment is complex, uncertain.

Lower-level managers are capable and experienced at making decisions.


Lower-level managers want a voice in decisions. Decisions are significant.

Corporate culture is open to allowing managers to have a say in what happens.


Company is geographically dispersed. Effective implementation of company strategies depends on managers having involvement and flexibility to make decisions.

Organization Structure (contd)


Formalization
The degree to which jobs within the organization are standardized and the extent to which employee behavior is guided by rules and procedures.
Highly formalized jobs offer little discretion over what is to be done. Low formalization means fewer constraints on how employees do their work.

Organizational Design Decisions


Mechanistic Organization
A rigid and tightly controlled structure

Organic Organization
Highly flexible and adaptable structure

High specialization Rigid departmentalization Narrow spans of control High formalization Limited information network (downward) Low decision participation

Non-standardized jobs Fluid team-based structure Little direct supervision Minimal formal rules Open communication network Empowered employees

Contingency Factors
Structural decisions are influenced by:
Overall strategy of the organization

Organizational structure follows strategy.


Firms change from organic to mechanistic organizations as they grow in size. Firms adapt their structure to the technology they use. Dynamic environments require organic structures; mechanistic structures need stable environments.

Size of the organization

Technology use by the organization

Degree of environmental uncertainty

Contingency Factors (contd)


Strategy Frameworks:
Innovation

Pursuing competitive advantage through meaningful and unique innovations favors an organic structuring.
Focusing on tightly controlling costs requires a mechanistic structure for the organization. Minimizing risks and maximizing profitability by copying market leaders requires both organic and mechanistic elements in the organizations structure.

Cost minimization

Imitation

Contingency Factors (contd)


Strategy and Structure
Achievement of strategic goals is facilitated by changes in organizational structure that accommodate and support change.

Size and Structure


As an organization grows larger, its structure tends to change from organic to mechanistic with increased specialization, departmentalization, centralization, and rules and regulations.

Contingency Factors (contd)


Technology and Structure
Organizations adapt their structures to their technology. Woodwards classification of firms based on the complexity of the technology employed:

Unit production of single units or small batches Mass production of large batches of output Process production in continuous process of outputs

Routine technology = mechanistic organizations

Non-routine technology = organic organizations

Contingency Factors (contd)


Environmental Uncertainty and Structure
Mechanistic organizational structures tend to be most effective in stable and simple environments. The flexibility of organic organizational structures is better suited for dynamic and complex environments.

Common Organizational Designs


Traditional Designs
Simple structure

Low departmentalization, wide spans of control, centralized authority, little formalization


Departmentalization by function Operations, finance, human resources, and product research and development

Functional structure

THE BUREAUCRACY
relies on legal authority, logic, and order, and on a division of labor, hierarchical control, promotion by merit with career opportunities for employees, and administration by rule.

2007 Prentice Hall, Inc. All rights reserved.

Mechanistic Designs
a highly bureaucratic organization that emphasizes vertical specialization and control

2007 Prentice Hall, Inc. All rights reserved.

Organizational Designs (contd)


Contemporary Organizational Designs
Team structures

The entire organization is made up of work groups or selfmanaged teams of empowered employees.

Matrix and project structures

Specialists from different functional departments are assigned to work on projects led by project managers. Matrix have two managers. In project structures, employees work continuously on projects; moving on to another project as each project is completed.

An Example of a Matrix Organization

Matrix
Matrix organizations provide facility to operate when the org has multiple complex and interdependent activities. allow more efficient allocation of specialized skills across the entire business. By taking advantage of the shared services and skills and not having to develop and manage those skills themselves, the divisional or product line organizations can better focus on their core business objectives

Organizational Designs (contd)


Contemporary Organizational Designs (contd)
Boundaryless Organization

An flexible and unstructured organizational design that is intended to break down external barriers between the organization and its customers and suppliers.
Removes internal (horizontal) boundaries:

Eliminates the chain of command


Has limitless spans of control Uses empowered teams rather than departments

Eliminates external boundaries: Uses virtual organizational structures to get closer to stakeholders.

Removing External Boundaries


Virtual Organization
An organization that consists of a small core of full-time employees and that temporarily hires specialists to work on opportunities that arise.

Organizational Learning

Learning
Learning occurs through the recognition of differences and the making of connections Learning may be purposeful or unintended

Learning involves more than just the acquisition of informationthe ability to act differently is also necessary.

An Organization
A group of people becomes an organization when the individuals which comprise it develop procedures for: Making decisions in the name of the collective. Delegating to individuals the authority to act for the collective. Setting boundaries between the collective and the rest of the world.

Definitions
"Organizational learning is the intentional use of learning processes at the individual, group, and system level to continuously transform the organization in a direction that is increasingly satisfying to its stakeholders." (Dixon, 1994)

"Learning organizationan organization that is continually expanding its capacity to create its future." (Senge, 1990) A classic expression of the OL can be found in the work of Argyris and Schn on single- and double-loop learning (1978, 1996).

Single loop Learning


This occurs when errors are detected and corrected and organizations carry on with their present policies and goals. It is a lower level learning and is equated to activities that add to the knowledge base of the firm without altering its fundamental nature.

Double loop learning


This occurs when in addition to detection and correction , the organization is involved in questioning and modification of existing norms, procedure policies and objectives. It is called a higher level learning as it involves changing the knowledge base of the firm.

Organizational Designs (contd)


The Learning Organization
Characteristics of a learning organization:

An open team-based organization design that empowers employees


Extensive and open information sharing Leadership that provides a shared vision of the organizations future, support and encouragement People sublimate their personal self interest and work together to achieve the organizational goal. People discard their old ways of thinking for solving problems and inculcate creative vision.

Requirements for Organizational Learning


The ability to move around in 'herds' rather than sitting individually in isolated territories Some individuals with the ability to invent new behaviors and/or skills An established process for transmitting a skill from the individual to the entire community through direct communication

Organizational Learning Cycle

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